Here’s What It Costs to Open a Coffee Shop
The past few years have seen a meteoric rise in the creation of small businesses. These often focus on products or services that have a high demand and a market that would be well-served by increased competition.
If you’re interested in opening a coffee shop, you may want to know how much it would cost, so you can decide if it’s economically feasible. Let’s take a look at a few reasons why opening a coffee shop might be a good business decision, how to set one up, and approximately how much it would cost.
Reasons to Open a Coffee Shop
There are many reasons for entrepreneurs to consider opening a coffee shop. First, the ability to be your own boss, set your own hours, and have a high level of control over day-to-day business operations is enormously appealing.
Second, starting a business allows the owner to make more money for their hard work than a traditional job would provide. Instead of receiving an hourly wage, a coffee shop owner with a good product and business skills who puts in the time and effort to succeed can make substantially more.
Another major reason is that newer coffee shops have an easier path to gaining a foothold in the market, as studies have shown that coffee drinkers’ brand loyalty is decreasing. For most consumers, especially those in the younger generations, convenience and price are more important.
How to Get Started Opening a Coffee Shop
Before you spend any money, there are a few things you need to do. First, write out a business plan that, put simply, explains your vision and how you plan to accomplish it. This is an important step because it will help you secure funding, resources, and much more.
Some people may wonder why they need a business plan for a coffee shop and assume that the requirement only applies to larger businesses or tech companies. However, every business, regardless of size or location, needs one for several reasons.
First, your potential business partners, landlord, and loan issuer, among others, will want to see something formal so they know that you have a plan. They will want to make sure they aren’t getting into business with someone who is just making things up as they go along.
Second, writing a business plan can help you, too. The process may help you to think about things you may have overlooked during the initial planning stages. For example, perhaps you have a flawless plan that’s almost guaranteed to succeed but you’ve forgotten to give your business a name. This might sound silly, but it’s a common oversight.
Another important reason is that a business plan requires market analysis. If you discover that the location where you plan to open your shop has had 12 different coffee stands go out of business in the last five years, or Starbucks is about to build a new shop across the street, you may want to reconsider that part of town.
What to Include in Your Business Plan
A coffee shop’s business plan should include several key sections. The first is the executive summary that explains your vision and your plans for the near future neatly and concisely.
Next comes the name of your company. Since a business name is usually something of personal significance, what you choose is almost entirely up to you. Just make sure that no one else is using the name, and its initials don’t accidentally spell anything you wouldn’t want customers to call you!
Step three is the market research analysis mentioned above. It doesn’t have to be too in-depth, and you don’t have to take hundreds of hours to complete. It’s mainly there to show landlords, loan officers, and even yourself that you’ve chosen a location that can support your business idea.
Step four is the operations plan, which details how the store will run day to day, how many employees you’ll have, and how you’ll source all the necessary materials. You can also include a sample menu in this section.
The fifth section explains the company’s advertising plans. Unless you’re in a small town where everyone will immediately know that you’re open for business, you’ll want to advertise. This should include both online (Facebook is an excellent start) and offline (newspaper or radio) methods.
Finally, the financial section will explain how you plan to pay for everything. Unless you have investors lined up or are financially secure to the point of self-funding, you may need a business loan. Thankfully, these are easier to get than ever, as we’ll explain in the final section.
Determining the Best Location
Perhaps one of the most important decisions you’ll have to make before opening a coffee shop is the location. You may already have one in mind or be planning on a strictly mobile service that operates in various locations out of a food truck. If not, you’ll want to think carefully about the best place to set up shop.
Your potential customers generally focus more on convenience and price than the coffee’s brand, so the right location must be very convenient.
Of course, you’ll also have to balance that with your financial situation. The most convenient location is likely in the heart of downtown, which will be considerably more expensive than a location 2 miles outside the city limits. However, if you have many visitors who take that particular road, it could be a great choice, too.
What You’ll Need to Get Started
Once you’ve written a business plan, the next step is to acquire the money to proceed. You can arrange this using private capital (e.g., a friend or relative lending you money), money you’ve saved over the years, or a business loan. The business loan is the most common type, so we’ll go deeper into that later.
Next, you’ll want to set about finding a supplier for your inventory needs. At the bare minimum, you’ll need coffee; ingredients like sugar, cream, whipped cream and sprinkles; and other essential items like cups, napkins, and carrying trays. You might want to add baked goods or other snacks.
Depending on what kind of shop you envision and other menu options you’ll offer, you may also need equipment for muffins or pastries, energy drinks for spritzers, plates, and things of that nature. Of course, it’s not a problem to skip the extras and focus exclusively on serving coffee.
You’ll also need some type of business insurance, high-quality accounting software, and a few good employees as you launch your enterprise. The business side of a coffee shop can be quite expensive, unfortunately, but you’ll need to pay for startup costs only once.
Kinds of Coffee Shop
Once you’ve assembled your business plan, have the necessary funds, and can purchase your inventory, the next step is to find a space for your business. Before you can do that, you’ll have to make an important decision: Which type of coffee shop do you want to open?
The first of your four options is a physical storefront like a sit-down café, which could be located in a mall or shopping center or stand alone. The second is a drive-through, which is normally located in or near a parking lot. Option three is a hybrid containing a drive-through plus indoor seating. Option four is to serve coffee from a food truck or something similar, which would allow you to have a standard walk-up location but also give you the freedom to be a vendor at outdoor events.
The right choice for you will depend on your wants, needs, and financial flexibility. Renting an entire building will naturally be more expensive than contacting a mall with an empty coffee stand in the parking lot and offering to rent the space.
However, you could potentially be starting on the wrong foot with the mall parking lot option. if another coffee place went out of business there, an issue with the location might have been the cause. Of course, the stand could have been poorly run, or perhaps the owner decided to move back to their old hometown across the country.
How Much Does Each Type of Coffee Shop Cost?
According to Chron, starting a food truck-based coffee shop will cost $50,000 to $150,000, a kiosk can run $60,000 to $100,000, a drive-through will cost $80,000 to $200,000, a sit-down café can run $80,000 to $275,000, and a hybrid café plus drive-through could cost $80,000 to $300,000.
It is also important to note that these are average costs, which means your costs could be significantly lower or slightly higher. The average cost includes coffee shops in Central Park, Hollywood, and other expensive locations, which means that opening a coffee shop in a small midwestern city would be significantly more cost-effective.
Determining average costs is difficult for many reasons, most notably that many business owners choose not to divulge the exact amount they spent because of pride, privacy, or other reasons. That is why the best guesses come from a business blog post rather than corporate publications or governmental sources.
Ways to Reduce Costs
As noted, the numbers listed above are only rough estimates and will vary greatly depending on the resources to which you have access. For example, if you happen to have a friend who owns a business or some land, they might be able to cut you a deal and help you save some money.
Another cost-saving alternative is to find a locally owned business like a hardware store or bookstore that might be willing to let you open your shop inside of theirs. They get more people in the building who might decide to make another purchase while they drink their coffee, and you can open without having to buy or lease a building.
You can also save money in smaller ways that add up over time. For example, you could find a collection of coffee cups that look perfect to hand to customers but are expensive. You may choose to use cheaper, plain white cups until your sales begin to take off.
Although opening a coffee shop can be expensive, it can also be a great way to become your own boss and fulfill your lifelong dream. If you’re a little short on capital but have an amazing business plan you can’t wait to put into action, ABC Business Loans may be able to help.
We’re faster and have less red tape than standard loan providers, which means that we can get you into the coffee shop of your dreams in less than half the time. Contact American Business Credit to start the process of applying for a business loan today!
